The Impact Of China’s Income Distribution Gap On Economic Growth

In recent years, China’s economy has maintaining rapid and steadygrowth, but income distribution gap, which inculdes urban-rural gap, regionalgap, industry gap, has continued to expand. Domestic and oversea theoreticaland empirical studies show that the relationship between income distributiongap and economic growth can no longer simply explained by an inverted "U"shaped curve. In that case, deep analysis of them has a profound significancenot only for socialist market economy development, but for government’seconomic policy-making. In the paper, it is inefficient government redistributionthat comes from income gap that hinder economic growth. Also, a two-stageeconomic growth model is built and tested by using China’s economic data andtwo kinds of econometric methods, cointegration regression and structuralvector autoregressive methods.finally, the paper concludes specific policyrecommendations with guide line:“seize the small and free the big”.In theoretical analysis，the paper finds that income distribution gap canimpact economic growth by government’s redistribution. Then a theoreticalmodel concerning China’s different conditions is built, and it concludes that, inthe short run:(1) The economic growth rate will increase,if the growth rate ofaverage skill level rise;(2) When the redistribution coefficient becomes bigger,the economic growth rate increases more quickly;(3) The smaller incomedistribution gap is, the faster the economic growth rate increases.In empirical analysis，using China’s economic data from1981-2007andcointegration regression method, some varibles’ general relationships arediscovered. The involved varibles are economic growth rate, incomedistribution gap, investment growth rate, the growth rate of average skill level.The paper idetifies that income distribution gap is negatively correlated witheconomic growth rate and the growth rate of average skill level is positivelycorrelated with economic growth rate. Furthermore, it employs the structuralvector auto regression (SVAR) model and impulse response function(IPF) tostudy their intricate interrelationships in the long and short horizon. Then it concludes:(1) The impact of Income distribution gap on China’s economicgrowth in the short term is negative, and it in the medium term through apositive process, and then it tenderly viberates to zero;(2) The impact of thegrowth rate of average skill level on economic growth rate are negative incurrent and lag four terms, then the impact attenuates to zero. In general,presented conclusions are verified.In the end，in order to to solve China’s income distribution gap, thegovernment should reduce the existing income gap and improve the efficiencyof government redistribution. So to speak, control high-income groups strictly,reduce low-income groups strugglingly and develop middle-income groupsvigorously.